A dividend is a payment made by a company to its shareholders.A company can retain its profit for the purpose of re-investment in the business operations (known as retained earnings), or it can distribute the profit among its shareholders in the form of dividends.
A dividend is not regarded as an expenditure; rather, it is considered a distribution of assets among shareholders. The majority of companies keep a component of their profits as retained earnings and distribute the rest as dividend.
The different types of dividends include:
Special dividend: Normally, public companies declare their dividends on a specific schedule; however, they also have the option to declare a dividend at any time. This type of dividend is referred to as a special dividend.
Cash dividend: Paid in checks, this is the most basic form of dividend. Cash dividends considered a type of investment earnings, and are taxable.
Stock dividend: Given in the form of bonus shares or stocks of the issuing company or a subsidiary company. Normally, they are offered on the basis of a prorata allotment.
Property (in kind) dividend: Distributed in the form of assets by the issuing company or a subsidiary company.
Other types of dividend: Warrants and financial assets having market value are also distributed in the form of dividends.
The distribution of dividends requires the approval of the board of directors, who declare the time or date when the dividend will be distributed.
The dates are categorized into four types:
Ex-dividend date: The ex-dividend date is defined as the date subsequent to which every share that is traded does not have any right to claim the dividend, which has been declared in the immediate past.
Declaration date: The declaration date is defined as the date on which the board of directors declares its aim for payment of dividend. On this date, the payment date and the record date are also announced.
Record date: The record date is defined as the date on or before which the shareholders who have officially recorded their ownership and are entitled to get the dividend.
Payment date: The payment date is defined as the date on which the checks of dividend will be sent to shareholders or deposited to brokerage accounts.